Existing art provides little or no facility for the payer to categorize or classify an expenditure on the physical payment media--a personal check, a bank draft, or postal money order. Through a manual handwritten means or a computer-generated system, payments by the payer are classified for tax, accounting, statistical, or budgeting purposes during the transaction point (the Transaction) or at a time thereafter. Obviously for the consumer, expenditures cover food, transportation, housing, utilities and other sundries. For the small business, they cover rent, salaries, supplies, inventory, and any other items for operating the enterprise.
If the payer uses an automated payment system at the Transaction, payments are easily classified through standardized or customized check writing, accounting and tax software. However, many individuals and small businesses cannot use this system for practical or economic reasons. It is simply not feasible to transport a computerized check system for the Transaction to every place where cash is disbursed--at the restaurant, department store, gas station, grocery store, or elsewhere.
Without an automated system, the payer must later classify payments with either a manual or a computer system. The payer with only a manual system often will make a handwritten memorandum which must be read and recorded into another record-keeping system. Without this handwritten memorandum, the payer is left with three means to later classify the expenditure: human memory; the name of the payee and perhaps a note on the Memorandum Line of the check; a source document cross-referenced and/or attached to the check itself. This undaunting task can fall into the hands of an accountant, a bookkeeper, or outside tax preparer who all have had no direct participation during the Transaction. Even the payer who has an automated system may input the payment information into another automated computer data processing system.
These two methods are flawed, because they absorb an undue amount of time and resources to properly record and classify each Transaction. The first one, which is purely manual, suffers from inefficiency and human error. The second one is duplicative. Every data processing system, no matter how advanced, requires at least one initial entry of data. The payer wastes valuable time and resources whenever he must re-input the payment data for each Transaction.
Prior art boasts an abundance of automated procedures and systems for the payer. In fact, high technology which now includes debit cards and other automatic payment mechanisms, appears to promise us the inevitable--the checkless society. However, the payer cannot escape the need (and indeed the burden) to fully document any Transaction for tax-reporting purposes. Aside from being driven by fear of an IRS audit, the consumer or small business benefits from tracing and tallying the expenditures in the most cost effective manner. Most of all, it is human nature in a capitalist society to obtain some form of receipt no matter what the expenditure is, usually, the cancelled check.
Contrary to expectations in some quarters, the number of checks processed annually has escalated from 38 billion to 60 billion during the last ten years. If anything, the technology has necessitated the even greater demand for speed and accuracy in check processing. For example, U.S. Pat. No. 5,016,919 issued to Rotondo (1991) provides for the placement of a second magnetic strip along the check's right side containing the same information as the bottom MICR-encoded one. This supposedly increases the accuracy of check processing by a bank. The hardware for check processing continues to enhance the speed and accuracy of this procedure. The IBM 3890 Reader/Sorter can process hundreds of checks per minute; furthermore, IBM even now has a new technology called Courtesy Amount Read which revolutionizes processing speed and accuracy by capturing the total image with an optical scanner.
Population alone does not account for the rise in checks issued, although the number of family units in the U.S. now exceeds 91,000,000. With the rising number of single and divorced household units, one can only expect more checking accounts and checks being processed. On the business side, the 1991 tax year generated over 20,000,000 business tax returns (corporate, partnership, and sole proprietorship) filed with the IRS. With more corporate downsizing and more workers voluntarily and involuntarily choosing career alternatives--outside consulting and contractual assignments--there will be more tax returns. Economics and demographics support this trend.
Now more than ever, family households and small businesses must closely monitor monthly expenditures. Up until now, no system has directly bridged the technology of bank check processing and the payer's need to classify expenditures.
U.S. Pat. No. 3,980,323 to Boyreau (1976) describes a manual system of classifying expenditures for tax purposes with a physical mark on the face of the check, but without the benefit of the bank's internal data processing.
U.S. Pat. Nos. 4,346,917 and 4,400,017 to Clancy and Pendergrass [1982 and 1983, respectively] also describe other purely manual systems of classifying check expenditures and budget entries. But again, these two manual systems do so without the benefit of the financial institution's computerized data processing.
U.S. Pat. No. 3,949,363 to Holm (1976) merges various MRS systems into a single stream of data to expedite check processing. The payer, however, neither creates these codes nor directly benefit from this process.
U.S. Pat. No. 5,044,668 to Wright (1991) utilizes the bar code or MICR-encoded magnetic strip of account information on the bank check. But the payee of the check, not the payer, benefits from this check processing--immediate approval or rejection at the Transaction.
U.S. Pat. No. 4,974,878 to Josephson (1990) describes a single payment coupon system: a multi-funtional set of documents encompassing a pre-authorized draft and a negotiable instrument. But this system can complicate the accounting procedures for the payer when he uses the payee's pre-printed check. The payer has no immediate record in his checkbook register; consequently, he can risk overdrawing his account!
U.S. Pat. No. 5,121,945 to Thomson and Josephson (1992) seeks to streamline transaction procedures for the payee and payer. It also describes another format of pre-printed, integrated Accounts Receivable notice and bank check, relatively similar to the aforementioned reference. But again, the payee pre-arranges and controls the check payment process to his advantage, not to the payer.
Finally, U.S. Pat. No. 5,193,055 to Brown and Scherer (1993) is an accounting system for the family household and small business. This overall system of data processing for accounting purposes limited advantages here. The payer must rely on a storage medium other than the check itself to recall and record various numeric codes assigned to pre-classified expenditures. More specifically, this system imposes these additional burdens on:
(1) the payer with an automated system of check writing and accounting, it forces the payer after the checks have been processed by the bank to read the cancelled checks at another off-site location; or PA1 (2) the payer with a high volume of manual check writing, it may necessitate purchasing an accounting software package or employing an outside accountant to prepare a suitable chart of accounts; or finally, PA1 (3) the payer with a low volume of manual check writing, it may simply lack the economic justification.